Why European pricing is discouraging carbon markets in developing countries

Developing countries could scale back their carbon-finance programmes in the next 10 to 15 years if the European Union (EU) and other developed nations do not raise the carbon price floor to a more competitive level, a survey released by The International Emissions Trading Association (IETA) suggests.
The survey, conducted by consultants PricewaterhouseCoopers (PWC), shows expectations of carbon prices between 2020 and 2030 remain stable at around €18 per tonne of emissions. The price, according to respondents, needs to rise around 66 percent to €40 if it is to achieve the long-term objectives of the multilateral COP21 agreement reached in Paris in December 2015.
Speaking at the Carbon Expo conference in Cologne, Jonathan Grant, director of PWC, said pricing remains “too weak to have a real impact on business decisions”, and that a low price in the EU could damage global efforts if it is taken as a benchmark for developing nations to implement climate financing measures.
“Other countries will look to the EU emissions trading system (ETS) as an example, but if they see the low prices there, they may be less inclined to [set] a higher price in their own market,” he told delegates.
Grant said Europe and other developed nations need to act more rapidly post-Paris to bring to fruition those market systems at the centre of talks being held at the expo. France recently passed a finance bill opening a new pricing corridor to allow different nations varying terms on which to achieve their goals.
The main purpose of the corridor however is to motivate developed countries to set a stable price floor. The UK has set its own at €25 per tonne of emissions, while Germany and others edge closer to theirs, having garnered support from both companies and investment funds.
Speaking at another session, Christiana Figueres, executive secretary of the UN Framework Convention on Climate Change (UNFCCC) said the key challenges developing countries face in rolling out climate finance programmes begin with implementing the right legal frameworks for capital to flow to sustainable projects.
“Most developing countries have come forward with their INDCs (Intended Nationally Determined Contributions), but those need to be taken to the next level of detail and the next level of granularity so that those that do want to invest know what they’re investing in,” she said.
The COP21 agreement, which was reached with the signatures of a record-breaking 195 nations, requires painstaking work for its implementation through financial architecture, technological innovation, governmental co-operation and market openness. Carbon pricing is only one factor needing attention though it remains a significant barrier to progression in the next 15 years to 2030.
“The concern is that the EU emissions trading system does act as a sort of ceiling on ambition in other countries, should prices remain low for the foreseeable future,” Grant commented.